Islamic finance in Europe (128)

Continuation

In this case, the LIBOR is representative of the greater scale of financial assets.

Islamic finance is one part of that.

Therefore, the assets of Islamic banks are equally exposed to the risk of changes in the LIBOR.

Consequently, changes in the interest rates paid to depositors in conventional banks will influence the conditions offered to those depositing funds with Islamic banks.

If there is a difference between:

-      conventional

-      and Islamic banks

operating in the same environment, this implies some displaced commercial risk.

Depositors may flee to the type of institution that is considered more attractive.

From the research paper of European Central Bank

(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho, B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)